Bastiat’s Bastions

Take a look at this item from the editorial page of the Daily Comet on February 23rd. I’m not sure I understand it.

The basic thrust is that Mardi Gras parades are provided to the residents for “free”, though the author admits it is fun for those who do the parading. The editorial goes on to state that in Terrebone Parish, almost $8 million is spent on parades. What the author apparently wants us to do is to “imagine for a moment what Mardi Gras would be like without all those generous people.” Later, it continues, “That is big money and a huge reason for our communities to thank the people who give so much to ensure that the rest of us have such a great time at Mardi Gras.”

Apparently, the author is looking for a thank you card? But I am not so sure one is deserved. Read on…

Do the paraders care about just my happiness? If they did, I think the parade would look different. I like parades, elaborate floats, and catching beads, but renting a flat bed truck and throwing plasma screen TVs off the back would be superior in my opinion. Paraders don’t have only my happiness in mind, or are grossly misinformed about what makes me happy. Admittedly, plasma screen TVs are harder to throw than aluminum doubloons, but wadded up $20 dollars bills fly pretty well.

Am I supposed to be impressed by the economic impact of the $8 million spent on parades? I am not impressed. To be fair, I am not certain the editorial above is purporting the economic impact of Terrebone Parish’s Mardi Gras celebrations are $8 million. But nonetheless, the economic impact is surely not $8 million, giving me an opening for an economics lesson. In fact, for Terrebone parades, the economic impact is likely to be very close to $0.

Economic impact studies often fall to account for what are called “leakages” and fail to realize that different forms of leisure spending are substitutes. When Tom Benson was threatening to move the Saints out of New Orleans, many articles and studies cropped up trumpeting the economic development ramifications or economic impact of having the Saints in New Orleans. All but the very best of these studies are flawed because they fail to take into account these leakages and substitution. In fact, the consensus is that professional sports franchises in general have a negligible economic impact, period. But back to Mardi Gras…

Let’s tackle substitution first.

Imagine for a moment that, by decree, Mardi Gras was cancelled by a curmudgeon of a new mayor. Does that mean that the $8 million spent on Mardi Gras would evaporate? That people would hoard money under their mattresses? Or does it mean that the $8 million that would have been spent on Mardi Gras would instead be spent on other leisure activities, say at restaurants, bars, on family picnics, and college baseball games. It is the latter. Mardi Gras parades and other forms of leisure activities are indeed substitutes. In that sense, there is no economic impact of Mardi Gras in Terrebone parish (New Orleans will be a different story).

Loyal readers will see a resemblance here to our blog’s very first post on an essay written by our blog’s namesake concerning the economics of purposely breaking window to drum up spending.

Now, on to leakages. Even if $8 million dollars were spent on Mardi Gras in Terrebone Parish, and even if we erroneously assume that this $8 million would not have been spent without Mardi Gras occurring, it is highly unlikely that all of the $8 million of spending benefits businesses that are located in Terrebone Parish. That is, the economic impact would be less than $8 million.

Say, $1 million dollars of spending accrues to business located in Jefferson Parish. Say that another $1 million in spending was enjoyed by ACME Bead Producers, whose corporate profits are sent back to their headquarters in Albuquerque, New Mexico where their executives spend their lavish bonuses.

For another contrived example, say the Saints pay Drew Brees $10 million dollars in 2006, but Drew rents only a $500 a month apartment in New Orleans, spending all of the rest of his time and money in San Diego. In this case, clearly $10 million dollars is a vast overestimate of the economic impact Drew Brees has on the area, as a significant fraction of the money “spent” by the Saints has “leaked” to San Diego. These leakages serve to lessen the stated economic impact, and good studies of economic impact correct for leakages.

Given that there is no economic impact of Mardi Gras in Terrebone Parish, is the story different in New Orleans?

It is a much different story. For New Orleans parades, a significant fraction of the spending Mardi Gras creates is spending by non-residents. It would not be correct to say the economic impact tourist dollars are $0. If not for Mardi Gras, these tourists would not be spending money in New Orleans – it is Mardi Gras that brings them to New Orleans. Stated a bit differently, the substitutes for Mardi Gras spending for these folks are college baseball games in Cleveland, or parties in Tulsa, and these expenditures would not have helped the New Orleans economy.

So for the people who put on parades that attract out of town tourists, I say thank you for bringing in dollars to the New Orleans economy.

And to the folks in Terrebone Parish, a much, much, smaller thank you for providing me a bit of entertainment and a few cents worth of plastic. While they did not give me a TV, it is unlikely I would have enjoyed any happiness from the $8 million they spent on other leisure activities, so I am slightly better off with the parade.

And as long as I am thanking people, I want to thank Detroit auto workers for their time; they work a 40 hour week for a living…

Just for the record, there could be an economic impact if the Terrebone Parish parades bring in non-local people. It seems quite likely to me there are few such people attending local parades.

I began this post with a complaint abut the editorial – just to complete that thought, my guess is the author of the editorial doesn’t understand substitution or leakages.

A closing thought or two…

If there is an economic impact of holding parades that attract tourists, do you think it would be correct to say that cities compete in throwing the best parades or having the best parade atmosphere? Is it now suddenly very important to have the best parades? Does this have anything to do with why tourism officials are so sensitive to safety perceptions in New Orleans? I also heard this was a more family friendly Mardi Gras. Could this be cause for concern?

By the way, I heard Mardi Gras in Galveston this year was hopping. Mardi Gras in Clemson was very lame.

–CT

This entry was posted on Monday, February 26th, 2007 at 11:03 am and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.